RICHFOOD SUES SHURFINE ON 'DUTY ABDICATION'

WILMINGTON, Del. -- Richfood Holdings, Richmond, Va., filed suit last week against Shurfine International, Northlake, Ill., alleging "various acts of self-dealing and the abdication of managerial duties and oversight responsibility+[that resulted in] an inexcusable waste of corporate assets" by the company's board and specific officers. Richfood, a Shurfine member since March 1996, said it temporarily

WILMINGTON, Del. -- Richfood Holdings, Richmond, Va., filed suit last week against Shurfine International, Northlake, Ill., alleging "various acts of self-dealing and the abdication of managerial duties and oversight responsibility+[that resulted in] an inexcusable waste of corporate assets" by the company's board and specific officers. Richfood, a Shurfine member since March 1996, said it temporarily suspended ordering from Shurfine Sept. 22 in favor of buying directly from vendors.

Shurfine is a cooperative that combines the purchasing power of its members to obtain the best possible terms and prices from vendors. Richfood's suit was filed in the Court of Chancery here in Delaware, where Shurfine is incorporated, on behalf of Richfood itself and other Shurfine members.

In response to the suit, Shurfine said last week it has appointed two attorneys to investigate the allegations and to protect the interests of Shurfine's shareholders. The company said the board will "insist on a thorough investigation of all allegations against anyone," although it also said it "knows allegations against it are unfounded."

In the suit Richfood says it believes "that the profitability of Shurfine and thus Richfood's patronage dividends were substantially reduced because of the mismanagement, self-dealing and breaches of fiduciary duty." Those alleged breaches, the suit says, caused Richfood to suffer damages in an unspecified amount and indirectly injured Shurfine's other stockholders as well.

The charges in the suit include the following:

That Shurfine breached agreements with Richfood that guaranteed it would get the same prices and terms it could get buying directly.

That Shurfine allowed Donald M. Kolvenbach, chief executive officer of Affiliated of Florida, Tampa, Fla., to remain as Shurfine's board chairman at a time his company was financially unstable and receiving allegedly more favorable payment terms than other members -- even after the company's credit insurance was canceled and just before Affiliated filed for bankruptcy protection last April, which resulted in a $500,000 reserve for estimated losses. Kolvenbach told SN he had not seen the legal paperwork and declined comment.

That Shurfine invested approximately $1 million to develop a premium private-label line in a joint venture with a partner that never invested any money -- a partnership that has been dissolved, with Shurfine incurring losses of approximately $1.1 million.

That Paul T. Jasper, president and CEO of Shurfine until last June, convinced the cooperative to sponsor a NASCAR entry driven by his son -- a program "that allowed Jasper unfettered discretion in [an] atmosphere devoid of checks or controls . . . [with] no legitimate business purpose or marketing objective." Jasper could not be reached for comment.

That Shurfine "is responsible for a system that so lacked controls" that it shipped inventory to an export customer without receiving prepayment or a letter of credit, resulting in a loss of $120,000.

That Shurfine purchased novelty items that were outside its normal product assortment and that proved unsalable, resulting in a loss of about $651,000.

That Shurfine lost approximately $229,000 from a sports marketing program in fiscal 1996.